Related papers: Optimal investment with intermediate consumption a…
We show that, in a resource allocation problem, the ex ante aggregate utility of players with cumulative-prospect-theoretic preferences can be increased over deterministic allocations by implementing lotteries. We formulate an optimization…
Although maximizing median and quantiles is intuitively appealing and has an axiomatic foundation, it is difficult to study the optimal portfolio strategy due to the discontinuity and time inconsistency in the objective function. We use the…
We study an intertemporal consumption and portfolio choice problem under Knightian uncertainty in which agent's preferences exhibit local intertemporal substitution. We also allow for market frictions in the sense that the pricing…
In a market with stochastic investment opportunities, we study an optimal consumption investment problem for an agent with recursive utility of Epstein-Zin type. Focusing on the empirically relevant specification where both risk aversion…
We consider a stochastic optimal control problem in a market model with temporary and permanent price impact, which is related to an expected utility maximization problem under finite fuel constraint. We establish the initial condition…
We introduce a theory of stochastic integration with respect to a family of semimartingales depending on a continuous parameter, as a mathematical background to the theory of bond markets. We apply our results to the problem of…
Recent literature in the last Maximum Entropy workshop introduced an analogy between cumulative probability distributions and normalized utility functions. Based on this analogy, a utility density function can de defined as the derivative…
This paper investigates the optimal consumption, investment, and life insurance/annuity decisions for a family in an inflationary economy under money illusion. The family can invest in a financial market that consists of nominal bonds,…
In this paper, we study a constrained utility maximization problem following the convex duality approach. After formulating the primal and dual problems, we construct the necessary and sufficient conditions for both the primal and dual…
We study a robust stochastic optimization problem in the quasi-sure setting in discrete-time. We show that under a lineality-type condition the problem admits a maximizer. This condition is implied by the no-arbitrage condition in models of…
We study the optimal investment-consumption problem for a member of defined contribution plan during the decumulation phase. For a fixed annuitization time, to achieve higher final annuity, we consider a variable consumption rate. Moreover,…
The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
The subject of this paper is an optimal consumption/optimal portfolio problem with transaction costs and with multiple risky assets. In our model the transaction costs take a special form in that transaction costs on purchases of one of the…
We discuss an optimal investment, consumption and insurance problem of a wage earner under inflation. Assume a wage earner investing in a real money account and three asset prices, namely: a real zero coupon bond, the inflation-linked real…
We address the Merton problem of maximizing the expected utility of terminal wealth using techniques from variational analysis. Under a general continuous semimartingale market model with stochastic parameters, we obtain a characterization…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
The "standard" Merton formulation of optimal investment and consumption involves optimizing the integrated lifetime utility of consumption, suitably discounted, together with the discounted future bequest. In this formulation the utility of…
We explore martingale and convex duality techniques to study optimal investment strategies that maximize expected risk-averse utility from consumption and terminal wealth. We consider a market model with jumps driven by (multivariate)…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…